This is a review of a lawsuit
ComplianceFinanceJanuary 25, 2018

Importance of the correct debtor name in agricultural liens

A recent Texas court case once more brought to light the significance of getting the name of a debtor correct on an agricultural lien UCC filing. The decision, which came in December of 2017, found that information added to the debtor’s name rendered a financing statement seriously misleading.

The case in question is Fishback Nursery, Inc. v. PNC Bank, N.A. (Civil Action No.. 3:16-CV-03267-B, United States District Court for the Northern District of Texas). It came to the court in the aftermath of a bankruptcy proceeding. The parties claimed interests in the same property of now-bankrupt BNF Operations LLC. PNC asserted a lien over BNF’s assets because of loans it made to BNF, and Fishback Nurseries asserted liens over agricultural products they sold BNF. PNC was a secured creditor of BNF and held a security interest in substantially all of BNF’s assets perfected by the filing of a financing statement.

Fishback sold agricultural products on credit to BNF’s locations in Oregon, Michigan, and Tennessee. Fishback claimed to hold a security interest in the form of agricultural liens in those products. To perfect its interests, Fishback filed UCC financing statements in Oregon, Michigan, and Tennessee that they claimed are valid, enforceable, properly-perfected, and superior to PNC’s claims.

The Fishback financing statements provided the debtor name as “BFN Operations, LLC abn Zalenka Farms.” The debtor’s correct name is “BNF Operations LLC.” The court noted that listing a debtor’s name on a financing statement is one of three essential requirements (the other two being the name of the secured party or a representative of the secured party, and an indication of the collateral covered by the financing statement. 9-502(a).

The court determined that the Nurseries failed to provide the correct name. This is important because Article 9, at its core, is a notice system, intended, among other things, to notify subsequent creditors of previous creditors in aid of making their loan decisions. The court, citing 9-506(b), found that a financing statement that fails sufficiently to provide the name of the debtor is seriously misleading, rendering the security interests ineffective.

However, Oregon, Tennessee, and Michigan have a savings clause in their statutes: “If a search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic would disclose a financing statement that fails sufficiently to provide the name of the debtor, the name provided does not make the financing statement seriously misleading”. 9-506(c)

PNC conducted searches of Oregon, Michigan, and Tennessee records using those states’ search logic under the name “BFN Operations LLC”, but did not find Fishback’s financing statements. That is because the search logic Oregon, Michigan, and Tennessee use is not inclusive in the way, say, a Google search is. While a Google search would theoretically produce records under “BFN Operations LLC abn Zalenka Farms” from a search for “BFN Operations LLC” because the former includes the latter, a search of Oregon, Michigan. and Tennessee’s databases would not because their search logic does not return a result just because the search term is included in the query.

The court ruled that because Fishback failed to file effective filing statements, they lacked perfected liens. PNC’s properly filed liens were ruled superior secured interests.

This is yet another example of a well-established law in action, but the lesson is worth repeating: get the name right!

Lien Solutions offers a full range of UCC search, file, and lien management services that can help mitigate the risks associated with “naming wrongs."

Amanda Rasizzi of Lien Solutions
Director of Marketing
Amanda Rasizzi is Director of Marketing for Wolters Kluwer Lien Solutions. She oversees all marketing activities for the company. Rasizzi and her team communicate the company’s array of lien management, risk management, and life-of-loan solutions to prospects and clients, support the selling efforts of the Lien Solutions organization, and position the organization as an industry market leader.